Gap Inc. Moves in a Positive Direction Seen in Fourth-Quarter Earnings

Retail

As of Thursday, March 1, 2018

There was no gap in the financial results reported on March 1 by Gap Inc. The San Francisco–based retailer—one of the largest in the United States—saw a huge jump in net earnings for the year and even experienced positive same-store sales in the fourth quarter for all its various nameplates except for the Gap stores.

The company has been working to turn around its lackluster sales at its outposts including Banana Republic and Gap and saw even better positive results at its bargain-clothing store Old Navy.

“Our strong positive comp and margin expansion during the critical holiday quarter affirms our balanced growth strategy,” said Art Peck, Gap’s president and chief executive, who was speaking on a conference call with financial analysts. “Our outlook for 2018 demonstrates confidence in our strategy and a meaningful step up in earnings capacity for the company.”

In the fourth quarter ending Feb. 3, 2018, same-store sales for Old Navy Global jumped 9 percent versus a positive 5 percent the previous fourth quarter. Banana Republic Global squeaked ahead with a 1 percent improvement in same-store sales while Gap Global same-store sales were flat in the fourth quarter compared to the same period one year earlier.

Peck minced no words about the disappointing results at the Gap nameplate and talked about how he wasted no time in firing Jeff Kirwan, the president and chief executive of the Gap brand, last month. “In the fourth quarter, we started to see operational missteps hindering comps, inventory mismanagement and late product deliveries,” Peck said. “We intend to move quickly forward. We are carrying more inventory at Gap right now, and there will be pressure in the first half of the year. We see a fix, but it won’t be immediate.”

At the end of the year, inventory for the entire company was up 9 percent.

For the fourth quarter of fiscal 2017, Gap Inc. had $4.8 billion in net sales compared to $4.4 billion during the same period one year earlier. Net income totaled $205 million in the most recent fourth quarter compared to $220 million in the same period of fiscal 2016.

For the full fiscal year, which included 53 weeks in 2017 versus 52 weeks in fiscal 2016, net sales were up to $15.9 billion compared to $15.5 billion the previous year. Net income improved considerably, totaling $848 million in fiscal 2017 compared with $676 million the previous year.

After closing several unprofitable stores, Gap Inc. plans to open 25 stores this year. The company ended fiscal 2017 with 3,594 stores in 45 countries, of which 3,165 were company owned.

Like many other companies, Gap Inc. is expected to receive millions of dollars in extra cash this year from a lower tax rate. For fiscal 2017, the company’s tax rate was at 40.4 percent but should be 26 percent this year.

“We are positioning the company for long-term growth,” said Teri List-Stoll, executive vice president and chief financial officer for Gap Inc. “In addition to leveraging productivity initiatives to fund investments in the business, recent tax reform changes provide a meaningful increase in future earnings.”